A company's net profit divided by its total shares outstanding - the per-share profitability metric that drives P/E valuations and quarterly earnings surprises.
EPS is the most closely watched single number in quarterly earnings reports. Basic EPS = (net income − preferred dividends) ÷ weighted average shares outstanding. Diluted EPS includes the effect of all potential shares from stock options, convertible bonds, and warrants - a more conservative figure used by most analysts. Companies also report adjusted (non-GAAP) EPS excluding restructuring charges, stock-based compensation, and other items they consider one-time; analysts typically use adjusted figures for comparability.
The market's reaction to an earnings report depends almost entirely on the comparison between reported EPS and the consensus analyst estimate. A company that reports EPS of USD 1.20 against an estimate of USD 1.10 - a 9% beat - typically sees its stock rise significantly. If the same company reports USD 1.20 against an estimate of USD 1.30 - a miss - the stock falls even though USD 1.20 is a high absolute number. The size of the beat/miss relative to the 'whisper number' (unofficial buy-side expectation) drives the initial reaction.
EPS growth rate is as important as the absolute level. A company growing EPS at 30% annually justifies a higher P/E multiple than one with flat EPS. Earnings revisions - when analysts update their estimates after a quarterly report or management guidance change - drive sustained price trends after the initial reaction. Upward revisions attract momentum buyers; downward revisions attract sellers.
Worked Example
Company reports Q3 net income: USD 480 million. Weighted average diluted shares: 200 million. Diluted EPS = USD 480M ÷ 200M = USD 2.40. Consensus estimate was USD 2.20. EPS beat = USD 0.20 (9%). Management raises full-year guidance from USD 8.80 to USD 9.20. Stock rises 6% in after-hours trading on the combined beat and raised guidance.